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At 2:00:00 AM Germany Feb Construction Orders y/y (exp n/f, prev -5.2%) At 2:50:00 AM France March Consumer Spend. y/y (exp 1%, prev 1%) France March Consumer Spending (exp 0.1%, prev 0.4%) At 4:30:00 AM UK March M4 y/y prov (exp 6.2%, prev 6.2%) UK March M4 lending prov (exp 6.4 bln, prev 3.4 bln) UK March M4 m/m prov (exp 0.5%, prev 0.6%) At 6:00:00 AM E-12 Feb Trade Balance 1st estim (exp 4%, prev -0.6%)
After the ripple effects of a plane crash in Milan and a train wreck in Florida worked their way through the market yesterday, the dollar edged lower to new 3-month lows against the European majors in Friday Tokyo trade, but steadied against the yen after dropping to a one-month low of 129.63 overnight. Although the greenback remains on the defensive after taking out key support levels against the majors, the dollar's 4-day retreat should slow today, leaving profit-takers a chance to pocket gains ahead of the weekend.
The euro rose to a new 3-month high of 89.23 cents in late Asian trade but remains pressured by the magnitude of this week's steady 1.5% rise as well as news that German IG Metall engineering union and employers will have to meet later today for last ditch talks to seek a pay deal. If IG Metall obtains more than 3.7% or 3.8% it would present a defeat to businesses but also would nudge up an already sturdy inflation rate of 2.5%. The lack of compromise puts the inflation picture in focus in the Eurozone and highlights the risks to quicker rate hikes by the ECB from the current 3.25%, which in turn weighs on the euro.
Wage pressures and labor unrest have slipped under the radar in recent weeks as the market has focused on the Israel/Palestine conflict, higher oil prices and Greenspan, but the fact that it has gone unnoticed means that the underlying structural problem Europe faces with its labor unions could come back to bite once the more palpable problems fade from the media's attention.
EUR/USD should have difficulty overcoming resistance at the 89.50 level which marks the 50% retracement of the Sep 17 high (93.33) thru the Feb 01 low (85.62). But the euro's ability to bounce back from overnight lows around 85.55 bodes well and both the 89-cent mark and its 200-day moving average at 88.95 should provide strong support. That is backed by support at 88.70/65 area. 88.70 marks the 61.8% retracement of the 90.62 to 85.63 decline and is followed by support at 88.35. Only a move below 88.35 is seen compromising the technically bullish stance of the pair.
GBP/USD rose to a day's high of 1.4498, just below 1.4515, which marks the reaction high hit on January 14. Like the euro, sterling should find it difficult for its next move beyond the 1.45 mark after rising over 1.3 cents this week. Therefore, look for sterling to target support at 1.4470 (previous resistance), 1.4435 (reaction low) and 1.4410 the 61.8% retracement of the 1.4355 to 1.4495 advance. A break of 1.4355 would signal a possible reversal to this week's gains and should be closely watched.
USDCHF has broken well below the 1.6480 support to hit 1.6443--its lowest level since January 7, just below key support seen at 1.6450, which is the 50% retracement of the January high (1.7222) to the September low (1.5670). Subsequent support is seen at 1.64 followed by 1.6350 reaction low and 1.6300 where a bottom should form. Resistance begins at 1.66 followed by 1.668--the 200 day moving average.
Any further appreciation of the franc is likely to be met by increasing concern from the Swiss National Bank. Vice Chairman Bruno Gehrig warned Thursday that the SNB would cut interest rates if a strong franc would hurt the economy, adding he doesn't know if the next SNB rate would be up or down. Gehrig also said the strong franc was a reason for concern.
Meanwhile, USD/JPY continues to trade below the psychological 130 level after the yen strengthened to 1-month high at 129.63 against the dollar overnight. Despite Thursday's comments by Japan MoF's Kuroda denying that Japan was softening its stance against a strengthening in its currency and that the yen had no reason to appreciate, the lack of buying interest in USD/JPY has kept it below key resistance at 130.00, 130.20 and 130.50/55. Failure to overcome the 130.50 level keeps the bearish leaning intact and a break below current lows at 129.88 would signal more losses to come.